Building Customer Loyalty in a Churning Market

All businesses suffer from churn – the moving of customers from one service provider to another. As new and innovative services become better understood and more widespread, more suppliers enter the market and so the opportunities for customers to change suppliers increases. Churn is expensive. Recruiting a new customer can cost 5-10 times that of retaining an existing one. So how can technology help in the constant battle to retain customers?

I’m going to illustrate what can be done by talking about mobile telecommunications – an industry where innovation is rife but where churn is a significant problem.

Mobile communications continues to grow very quickly. According to a recent Cisco survey, mobile data volumes are nearly doubling each year. By 2015 it predicts there will be 7B personal mobile devices globally. Analyst firm Ovum recently reported that in 2010 revenues from mobile data for European mobile operators exceeded that for voice calls for the first time.

Smartphones are completely changing the way that people use the Internet. It’s worth reminding oneself that now, in a pocket device, one has a phone, a camera, email, PDA, mapping with GPS, in some countries a near field payment device and of course access to thousands of applications. Morgan Stanley has predicted that in 2012 shipments of smartphones will, for the first time, exceed those for personal computers. The whole landscape of computing itself is changing.

With all this growth mobile operators should be very happy. Subscriber bases and mobile data volumes are growing. And yet, mobile operators can’t rest easy. Yes, innovation is everywhere, but most of the innovation (at least that visible to end users) isn’t going on in the mobile operators – it’s going on in the phones and the applications. End users are becoming more and more divorced from the particular network they use and, certainly in developed markets, operators primarily compete on two things only – price and coverage. The growth of the mobile Internet is pushing operators to the bottom of the value pile and risks leaving them as faceless utilities. This, in turn, leads to churn, with rates for mobile operators range from 20-40%, meaning that between 20 and 40% of subscribers will, per year, leave a network for another.

Other industries are of course liable to churn too. Insurance is one example – I recently used an online insurance aggregator to find car insurance and, within a few minutes, obtained a rate 20% below that that my current provider was offering. Online retail is another – it’s very easy to move to another retailer that might be offering a lower price on the same product. In general, churn is present wherever a product is a commodity or near commodity and where customer relationships are weak.

Some wireless operators are fighting back by identifying more ways in which they can meaningfully interact with their customers. To take a concrete example, one European telco, a Progress customer, is now continuously monitoring calls from their 30M subscribers to identify patterns of usage that indicate a different tariff would be more suitable for that subscriber. This could be as simple as noticing that the number of bundled monthly minutes used had been exceeded. A text message is then sent to the subscriber suggesting that they move to another tariff that would reduce the cost of calls in future. Time is of the essence. If the subscriber receives an offer soon after placing one of these calls they are far more likely to accept it than if the offer came through many weeks later.

The way that marketing campaigns are run can become a lot more responsive. The mobile operator may decide to run a campaign to, for example, promote a particular tariff it thinks will be of interest to a subset of its subscriber base – those people, for example, who spend more than $100 per month and roam frequently. Sending out offers via text message requires great sensitivity, as no operator wants its customers to feel it’s receiving spam. As the campaign executes results can be monitored in real-time and the target demographic of the campaign can be tightened to achieve a better response rate. Not only does this make the campaign more successful but also those subscribers that, in the end, are not targeted can become the target of a future campaign.

To do this requires a number of things. Firstly, software needs to be in place to allow the millions of subscriber calls to be analysed in real-time – an ideal use case for event processing. Secondly, there need to be tools which allow a marketing team itself, working largely autonomously without IT support, to create, test and dynamically enhance the rules which dictate which subscribers will receive the offer. And finally, positive responses to the offer need to be processed systematically through an order management system.

There are many other examples where responding quickly to subscriber activity can enhance a user’s experience of using a particular mobile operator. As Internet use becomes dominated by mobile, it’s likely that variable costs for data access, particularly where large downloads are concerned, will be introduced. The cost of a download will be calculated dynamically, dependent upon the bandwidth available within a particular cell at a particular time. At initiation of a large download (let’s say greater than 1Mb) the user could be prompted to ask whether he would like to download it at twice the normal bandwidth for another 10c. This would be a dynamic rate, calculated in real-time in response to current activity in the wireless cell and the propensity of the user to accept the rate.

So, what’s the general lesson here? By becoming more responsive to subscribers, mobile networks are increasing their value to customers, improving customer service and so reducing the likelihood of churn. Existing information about customer behaviour is being used but by being able to act on that information immediately they are able to communicate in a much more contextually suitable way so improving response rates and strengthening the customer relationship. All businesses should be looking how to use their operational information to respond to and interact with customers better. Real-time responsiveness to customer behaviour is becoming vital.

Progress, Telerik, and certain product names used herein are trademarks or registered trademarks of Progress Software Corporation and/or one of its subsidiaries or affiliates in the U.S. and/or other countries. See Trademarks or appropriate markings.